Huh? Tame US Inflation???

The headlines said Tame US Inflation and US Economy: Consumer Prices Rise Less Than Forecast.

I went huh?

Serious? Tame US Inflation??

The Reuters News article wrote

• Wall Street liked America's April consumer inflation numbers, even though there was little in the Wednesday report to ease the pressure on Main Street wallets.
  
  The Labor Department said that the Consumer Price Index jumped 0.2%, a bit less than the 0.3% gain economists had expected. Core CPI, which excludes food and energy costs, was up by 0.1%, also slower than general expectations for 0.2%.
  
  Year-over-year consumer prices rose more modestly than forecast. Overall prices advanced 3.9% from April a year ago, and core prices were up 2.3%. Analysts were expecting a 4.0% advance in overall prices and an annual rise of 2.4%.
  
  The Labor Department 's Consumer Price Index, the federal government's primary inflation yardstick, measures the prices of a mix of consumer goods and services such as transportation, energy, food and medical care.
  
  Numbers aside, "better-than-expected" was all Wall Street wanted to hear. Stocks traded modestly higher late in the day and interest rates held steady in the bond market, with the 10-year Treasury issue yielding an unchanged 3.91%..
  
  Len Blum, managing director of Westwood Capital, argued it would be difficult for an inflationary picture to develop because of the weak economic environment. Workers in many industries cannot push their wages much higher because their employers can easily shift production overseas.
  
  Instead Blum was firmly focused on the continued economic slowdown. "We're a consumer driven economy but consumer can't borrow as they historically have with their homes," Blum said. "They're getting pressured with gas and food prices, and with earnings lowering, consumers are going to slow spending."
  
  Blum observed that the 0.9% spike in food prices in April probably dampened the core CPI figure because consumers simply didn't have the cash to pay for nonfood items .
  
  Last month's figures weren't the runaway disaster many had feared, but that only shows how rough things have become, as the U.S. economy deals with the twin problems of inflation and a slowdown. (See: "CPI Shows Inflation Is Still Chugging") In particular, energy prices have spiked by 15.9% over the past year, and food prices have gone up 5.1%.
  U.S. mortgage application volume rose 2.9% during the week ending May 9, according to the Mortgage Bankers Association's weekly application survey. The MBA's application index increased to 674.4 during the week, compared with 655.4 one week earlier.

CNBC.com, however, carried a differing opinion, Tame Inflation? Tell That To People Buying Gasoline

• High gasoline prices got you down? Come to the land of seasonal adjustment, where the sun is always shining and gas prices fell 2 percent last month.
  
  What? You paid more? Well, in the real world, gasoline prices did rise by a sharp 5.6 percent in April from a month earlier, but the way that the Bureau of Labor Statistics adjusts the figures to smooth out seasonal oddities, it appeared to be down in the consumer price index released Wednesday.
  
  "The drop makes absolutely no sense. Where does the BLS buy their gas?" asked Mark Vitner, senior economist at Wachovia.
  
  No, there is not a magical government gas station where pump prices remain below $3 per gallon while the national average stands at $3.72.
  
  Another branch of the very same U.S. government, the Department of Energy's Energy Information Administration, said average retail gas prices actually shot up 9.5 percent in April from March.
  
  So who's right? It has to do with how the Bureau of Labor Statistics compares current price trends with the norm.
  
  Typically, gasoline prices rise sharply in April as the arrival of warmer weather encourages people to drive more.
  
  The government data is adjusted to reflect that pattern so that it can highlight variations from the trend.
  
  Because gas prices did not rise as much last month as they typically do in April, the seasonal adjustment showed that prices fell.
  
  This is no consolation for consumers grappling with record-high gasoline prices that have curbed spending on other goods and services, adding another drag to an already sluggish U.S. economy.
  
  "We don't feel great about paying less for seasonally adjusted gas. We feel bummed that we actually had to pay more for gas," said Kenneth Beauchemin, U.S. economist with Global Insight.
  
  But the seasonal adjustments are a useful tool for economists because they eliminate factors that probably say more about the calendar than the health of the economy, he noted.
  
  The data may also offer some peace of mind to Federal Reserve officials who have been increasingly wary of rising inflation.
  
  Investors have begun to speculate that the central bank may be forced to raise interest rates as early as this year if price pressures continue to build.
  
  Overall, the consumer price index rose by a smaller-than-expected 0.2 percent in April.
  
  So-called core prices, which strip out food and energy costs, were up just 0.1 percent, half the increase that analysts had forecast.
  
  Back in the unadjusted world, not only did gas prices rise sharply in April, but with oil hitting record highs on a regular basis, they are likely to keep climbing in the coming weeks.
  
  That means May's CPI data may look less tame.
  
  "We do not think that the market or the Fed should take false comfort from the data. We expect to see much worse numbers in both the headline and the core a bit down the road," said Joseph Brusuelas, chief economist with Merk Investments.
  

And it's incredible when the Bank of England is saying that the inflation should remain high. See the following video UK Inflation to Remain High...

And oh yeah, Food price surge in April

Oh yeah the markets liked the CPI numbers.

However, do note the differing opinions from the bond markets as yields remain relatively high.

What about Inflation?

My Dearest Moo Moo Cow,

Today's market wrap commentary posted on FSO by Market Commentator, Tony Allison, whould be of interest to you: Inflation: Comparing Apples to Oranges, Smoke & Mirrors Won't Pay Your Bills

Mr. Allison argues that the inflation is there and it only appears to be under control because of how the inflation is measured simply has been changed.

• Inflation is one of those issues that concerns people, but the normal reaction is a shrug of the shoulders, and shake of the head. It’s a problem that affects lives and futures, but most see it as a murky, complex subject beyond their control. And the media seems to think it’s “well under control,” even if our wallets argue otherwise.
  For those who grew up in the 1950’s and 1960’s, the world was a different place. An average guy with a high school education could support a large family. His wife didn’t have to work. He could save for retirement. He could pay down, or even pay off his mortgage by retirement. According to the US Census Bureau, Department of Commerce, the average family income in 1950 was $3,300. But then the average cost of a loaf of bread was 14 cents. That wouldn’t pay the sales tax on a loaf of bread today.
  These days you need two paychecks to support a family, usually with no more than one or two kids. Both parents need college degrees to get good jobs. They have little or no savings and their kids will be saddled with student debt if they go college. How can a middle class family be worse off today than 50 years ago with a booming economy, low interest rates and “minimal” inflation?
  These are complex issues, and globalization and the exporting of a large portion of our manufacturing base play a role. But inflation has not gone away, and is not as “quiescent” as the Fed would like us to believe. In the early 1990’s, the government was watching inflation rise and adversely affect federal deficits and what it paid out in entitlements. To bring down the cost of entitlements, the inflation rate was adjusted lower, but not by cutting government spending, or raising interest rates. No, inflation was lowered simply by changing the way in which it is measured.

Don't you agree?

Even here in Malaysia, what was the price of your favourite plate of chicken rice a decade ago compared to now? What about your absolute favourite 'roti canai'? What's the price now? How?

And Mr. Allison highlights some issue on how they are changing (or should I say fudge?) the numbers.

• Based on today’s numbers, Williams believes that the current inflation rate is approximately 10%, given the way inflation was measured prior to the 1990’s. Williams also reconstitutes M3 (the money supply), which the government no longer reports. “It’s growing 11% on a year over year basis.” Williams notes with dismay that Fed Chairman Bernanke is already planning to change the current CPI index to even more of a substitution basis, instead of a fixed-weight basis.
  “The original intent of the CPI was to measure a constant standard of living,” said Williams. “They are moving toward a declining standard of living, where you substitute hamburger for steak in the CPI because steak is getting too expensive. The next (comparison) may go to dog food.”

Mr. Allison warns the danger in fudging the numbers...

• You can’t get rid of inflation by changing how it’s calculated. And no nation in recorded history has ever been able to create prosperity by printing increasing amounts of its currency. Smoke and mirrors only buys time for elected officials to gain reelection and sweep the problem temporarily under the rug. However, more Americans are discovering their quality of life is in retreat. If the CPI is really 10% as John Williams believes, then those 4.5% Treasury Bond yields don’t look so good on a real return basis.
  While the cost of many consumer goods has fallen over the last few decades, especially electronics, the cost of living has risen relentlessly. The easier availability of credit has helped many to survive, but ultimately the debt load becomes a burden that cannot continue.

My dearest Moo Moo Cow.

Do give the article a good read.

Cheers!